Welfare Reform White Paper: Universal Credit to make work pay: Radical welfare reforms bring an end to complex system

This news article was published under
the 2010 to 2015 Conservative and Liberal Democrat coalition government

Universal Credit will make work pay for some of the poorest people in Britain.

Universal Credit will make work pay for some of the poorest people in Britain, the Secretary of State for Work and Pensions Iain Duncan Smith announced today, as he set out details of the government’s programme for Welfare Reform.

Launching the White Paper Universal Credit: Welfare that works alongside Deputy Prime Minister, Nick Clegg, Iain Duncan Smith set out how it will remove the complexities of the current benefit system which at the moment means it pays to stay on benefits rather than go into work.

The new Credit will provide a basic amount with additions for those with children and other caring responsibilities, people with disabilities and those with housing needs. It will be available for people both in and out of work and will replace the complicated and inefficient patchwork of existing support including: Working Tax Credit, Child Tax Credit, Housing Benefit, Income Support, income-based Jobseeker’s Allowance and income-related Employment and Support Allowances.

The new Universal Credit will ensure that support is withdrawn slowly and rationally as people return to work and increase their working hours, meaning that they get to keep more of their earnings for themselves and their families regardless of how many hours they work.

In the long run the reforms are expected to lift 350,000 children and 500,000 adults out of poverty.

Launching the White Paper Iain Duncan Smith said:

With 5 million people trapped on out of work benefits and almost two million children growing up in homes where nobody works, we cannot afford to simply continue tinkering around the edges of the welfare system. Only root and branch reform will do.

At its heart, the Universal Credit has a simple ambition – to make work pay, even for the poorest. This will finally make it easier for people to see they will be consistently and transparently better off for each hour they work and every pound they earn.

It will cut a swathe through the massive complexity of the existing benefit system and make it less bureaucratic to run. And by utilising the best data technology available, we will streamline the system to reduce administration costs and minimise opportunities for fraud and error at the same time.

This will change Britain for generations, and make sure we have a welfare system fit for the way we live and work today.

Speaking at the launch event in North London today, Deputy Prime Minister, Nick Clegg said:

Today the government is announcing the most radical overhaul of our welfare system since its inception, driven by a single, overriding principle: the purpose of welfare is to help people into work.

Across the country households will be better off. Not just better off because they’ve crossed a notional poverty line. Better off because they will have the chance of a better life for themselves, and a better life for their children. As the saying goes, a hand up, not a hand out.

There will be a new system of conditionality backed up by tougher sanctions for those who do not comply. Claimants will be split into four different groups depending on how close they are to getting back to work, and we will tailor the support they receive depending on which group they are in:

no conditionality – disabled people or those with a health condition that prevents them from working, lone parents or lead carer with a child under age one

keeping in touch with the labour market – lone parent or lead carer with a young child aged over one but under five

work preparation – disabled people or those with a health condition which prevents them from working at the current time

full conditionality – jobseekers

As part of a radical shake up of welfare, ministers will introduce mandatory work activity for some jobseekers, where advisers will have the power to refer customers to an up to 4 week full-time mandatory work activity project.

Every participant will be expected to spend at least 30 hours a week, for up to four weeks, on their work activity placement and will be required to continue to look for work.

The reforms will also tackle the complexities of fraud and error, which under the current system is highly susceptible – costing the taxpayer around £5.2bn a year and accounting for 3% of total welfare spending. Complexity also makes the system inefficient – in 2009 2.3m contacts to the DWP were driven by people contacting the wrong agency.

The Universal Credit will help reduce the scope of that fraud and error significantly as it makes the whole system simpler and easier to understand.

Notes to editors:

Today, 5 million people are stuck on out of work benefits in the UK, with 1.4 million who have been receiving out of work benefits for 9 out of the last 10 years.

We now have one of the highest rates of workless households in Europe, with 1.9 million children living in homes where no-one has a job.

There are 900,000 people who have spent at least 10 years claiming IB, while the cost of IB alone since 2000 has been almost £135bn

In July Iain Duncan Smith published a command paper setting out the direction of travel for reform of the benefits system.

The costs of Universal Credit will build up over the years. CSR2010 set aside £2bn to fund the implementation over the spending review period. The greater simplicity of Universal Credit will lead to administrative savings of more than £0.5bn a year in the longer term.

We expect 2.5 million people to be better off under the new Universal Credit. The financial rewards for entering work will improve, particularly for those on low earnings. This is because under the current system people who work longer than 16 hours would be taxed at around 96% – under Universal Credit around 900,000 people who already work 16 hours a week would be taxed at around 76%.

The financial reward for entering work will be improved. We will reduce by 1.6 million the number of workless households facing participation tax rates of over 70 per cent.

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